Market Snapshot - What Happened?

Tyler Durden's picture

A perfectly timed rumor that not only was unprovable but has potential merit (though has no ability to successfully 'fix' any of the issues that are rightfully staggering global equity and credit markets), was enough, combined with some awesomely-ironic VWAP reversion volumes to take the offer stack in S&P futures and squeeze weaker shorts enabling a miraculous run to the green finish line in ES today.

Having tested the 1130 level a few times overnight, S&P futures were increasingly anxious every time they reached down to this somewhat critical level and as we broke it for the third time during the day session, sure enough the China/Italy rumor hit as we pointed out earlier. Also, as we noted at the time, the half life of this jump was less than 30 minutes and just as we had fully retraced, the FT posted the story in full technicolor which realistically had absolutely nothing in it at all aside from the fact that a regular purchaser of sovereign bonds globally was meeting withe Italian officials last week (quelle surprise - sorry never learned Italian).

That was enough to take ES on a 4-5 Standard Deviation ramp-fest across VWAP and into the green for a wonderful evening of headlines about how we are all saved (just like the Port of Piraeus!!).

This move in ES was not totally unsupported as the EUR pulled back to its best levels of the day - dragging DXY just very modestly into the red for the day. Its worth noting that SEK was a major underperformer today relative to the US (down over 3.5% at one point before the late day ramp). Carry pairs were aided by the relative JPY selling as the day wore on and oil and copper rallied (the latter remained just red on the day as the former managed an almost 2% gain on the day). Silver and Gold seemed to suffer from liquidation early on but recovered some of the day's losses as the dollar rolled lower in the afternoon.

TSYs sold off as ES rallied but yields dropped in the last few minutes of the day even as ES powered into oblivion. notably 5Y underperformed +6bps from Friday followed by 2Y +3.6bps, 10Y +3bps, and 30Y +0.5bps.

Credit did behave 'differently' though - as is often the case and we note a few interesting tidbits: 1) there was net-selling in HY cash markets today - something we haven't seen in a while, 2) while HY did rally back into the close it remained 5-10bps wider on the day in 5Y but was very ugly in the less liquid 3Y (last we saw was 30-40bps wider!!), 3) IG rallied back also with ES but underperformed notably and ended the day 3-4bps wider of Friday's close, 4) IG9 (which matures Dec2012) was very ugly also - decompressing notably as those nasty tail names remain under pressure from the heavy-handed high gamma crowd in the tranche space, 5) HYG/JNK did not have as much fun into the close as stocks did (something we have seen again and again and tends to be a signal that equity was a little over its skis).

Charts: Bloomberg

Drilling down a little into equity and credit - we note XLF managed to gain 1.3% today but credit spreads were all wider: Citi +15 to 262bps, MS +14 to 350bps, BAC +8 to 370bps, GS +9 to 264bps. Builders were hit particularly hard after Fitch's downgrades of the entire housing market outlook and Insurers did not come back off their wides that much as the equity rally ensued. Interestingly in CMBX land - we saw (yet again) the long correlation trade (betting on increasing systemic risk) as seniors underperformed juniors and we also note (in with builders stress), ABX tranches were weaker pretty much across the board.


On a broad-based risk-asset basis, ES was supported up to around 1150-53 but ES accelerated notably expensive from there. After the day session close, the risk-basket is leaking lower as ES pushes incrementally higher. Add to this the fact that VIX closed up on the day as did Implied Correlation (though both well off their intraday highs) and that as we rallied the last 5-10pts in ES, we saw average trade size rising notably, we suspect professionals were selling into strength once again - though these squeezes always seem to move more than many believe recently.

From a cross-asset class perspective, those with a bullish bias would be better positioned adding to HY longs here, and those with a bearish bias should prefer to use equities. In relative-value land, a HY-IG compression - modestly hedged with an equity short should perform well if we remain range-bound.

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max2205's picture

TD can you post the return of just going long the last 30 min? I think it's about 200% in the last 4 weeks

The Peak Oil Poet's picture


Greek short term Bonds were trading at over 100% yield


meaning that "everybody" expected default

while that was happening every man and his dog has been secretly buying Greek short term bonds dirt cheap (ie the big funds dump them while their managers buy them)

that's why gold has been dropping lately

so oh gee sudenly there's a rescue (again)

and everyone cashes in and then ploughs it back into - gold




Snidley Whipsnae's picture

"There are no markets, just interventions."

Chris Powell, GATA

"The pampered princes on Bloomberg today suggested there was selling of gold to 'raise capital' today, and that selling was being done by 'central banks.' Perhaps they need to meet some margin calls. lol.

You just can't make this stuff up."   Jesse 

TwelfthVulture's picture

It wasn't just Bloomberg.  I saw this all morning.  All over the web, headline after headline, implying that gold was down due to selling to cover equities.  I mean, who the hell sells a profitable position to back up a losing position?  When AAPL goes down, does anyone suggest that investors are selling Apple to protect their Sino-Forest positions?

Snidley Whipsnae's picture

MSM is programmed to talk down PMs, and that is what they are doing...

But, nothing has changed. The fundamentals that were in place are still in place and are worsening day by day.

The central banks and soverign govs are continuing to play for one more day in the sun.

No one in power wants this slow motion train wreck to culminate on their watch... If it did the body count would begin and that number will be awsome...Many, many wealthy bond holders and equities holders and all associated institutions will be wiped out. So they kick the can again and print, print, print.

I believe that central banks are so desperate that they are now resorting to selling gold which they have accumulated over the past few years... in an attempt to keep gold from reaching $2K per oz. This is an 'all in' play for central banks for when their fiat scheme fails these central bankers, their institutions, their jobs, their reputations, all go away. They are desperate and fighting for their lives... With our soverign gold.

ManufacturedOpinion's picture

Isn't this options expiry week for stocks?

They're probably just "pegging the number" for Friday on the ETF's.

DeadFred's picture

In poker this would be a good time to call the bluff. Short term the only thing that will save this market is the 'for real' Chinese. Long term even they can't save it. When there are too many shorts you can expect the bankster to act like banksters. I think this turns by the end of the week. Watch for the news to change toward 'Maybe we have bottomed and this is the real recovery rally, blah blah blah' then the rug gets pulled out.

Everybodys All American's picture

John Paulson has been mentioned.


Manthong's picture

This might make for an interesting thread..  It might be instructive to review side by side charts of the SPX and the DJI from today..

I'm looking at them and I have a hard time believing I am not seeing double...  the (relative) high and low ticks at 15 minutes and volumes are almost PRECISELY identical - to the minute - for the entire day.

Is there some technical reason for this?

I've seen the stepped pump in the last hour a number of times, but both indexes precisely in alignment??? 

I can think of one fundamental reason in particular, but I can't believe it could be so obvious.. or careless.  

TwelfthVulture's picture

It's like that most days these days.  The NASDAQ also, but you sometimes have to adjust the y-axis.  (apologies, misread your post.  i'm talking general, i did not notice the exact movement you mentioned.)

What I find particularly "deja vu"-ish is that, ignoring the end of day melt-up, for the past week or so gold and silver moved down in tandem with the indices.  I have not seen that since the 2008 sell-off.

Manthong's picture

Maybe I am doing something wrong? 

The charts are scaled appropriately I think.

At each 15 minute mark, the direction and proportion of the movement looks the same.

The melt up is the same as a week ago Friday, only over 45 minutes rather than 30.


TwelfthVulture's picture

Oh, yeah.  You're seeing what you think you're seeing.  And you're right, it's getting tighter and tighter.  The next thing I expect to see (and it seems to be beginning) is everything moving together, equities, bonds, pm's.  All up or all down.  The only thing I haven't seen yet that I saw before the 2008 crash is Treasury yields AND prices moving in the same direction.  I remember watching it happen several times in the lead up to Lehman.  To this day, it's like an alien abduction or something, I can't really believe that I saw what I saw.

Ned Zeppelin's picture

If the traders were human, it owuld be suspicious, but since they are only computer programs, be surprised at nothing. 

Chaffinch's picture

Jim Wyckoff at Kitco normally explains drops as 'profit taking' (to cover losses on equities or margin calls). Always a mystery to me why the 'profit takers' just keep on hammering away trying to drive down through key support levels...

TwelfthVulture's picture

I know what you're saying it just makes no sense.  If I'm long AAPL and Sino-Forest, I sure as shit am not going to sell my AAPL so I can hold onto Sino-Forest.  And you don't get margin calls on a single position, you get them on the portfolio, so again, if Sino-Forest is dropping so fast that it is generating a margin call on an AAPL, Sino portfolio, I'm dumping the Sino-forest long before that happens.

DeadFred's picture

You, thankfully, are not a robot or bankster working for the dark side of the force. That explains most of the difference.

Chaffinch's picture

Ah but we're dealing with bears here. Bears won't dump on their Apples because they can eat their Apples; given the choice a Bear will shit in the Sino Forest part of his portfolio.

Smiddywesson's picture

perfectly normal price action I can assure you.

Soul Train's picture

yep, a lot of short covering these past few weeks in the last 30 min.

Today, it was panic covering to take profits.

scatterbrains's picture

I like to think this whole flag formation is weak shorts getting worked off. The event that triggers the big move will occur overseas obviously. Our equity tape here in the states will snap and those lone shorts that held in will get paid. I expect most peeps to be shaken out of their shorts, caught with their thumbs up their ass when it happens.


supersunken's picture

Didn't the same movement happen last Tue when rule 48 was in effect, Dow was down for most of the morning then came day market jumped even higher. 

buzzsaw99's picture

with each passing day the wolf has fewer sheep to chase around.

dwdollar's picture

With each passing day a boomer dies and the kids withdraw their inheritance in order to survive.  The clock is ticking...

Tinsu's picture

You can't imagine how true that is. 

Rainman's picture

Inheritance....what the hell is that ?? Blow it all bitchez !

Dave's picture

Told my son that very thing. You're on your own boy. Me and yo momma are going sailing.

BDig's picture

I was given the same lesson implicitly by my parents.  And I agreed until I had children of my own.

To me, money is a tool to buy, not items, but freedom.  Money is the ticket out of serfdom/slavery whatever you want to call it.  It's what enables some people to be an artist and not worry about starving.  Or be a philosopher and need not worry about publishing.  I hope to buy not only my own way out, but also my kids.  That's a big bill though depending on the quality of life you want to enjoy and the price of a slave 20 years from now.

Bicycle Repairman's picture

Here, here.  If you had kids just to turn them into slaves, you are not my countryman.  Be gone.

fasTTcar's picture

The goal is to live life big enough that the cheque to the undertaker bounces.

Ned Zeppelin's picture

Seems like once Europa closes the US PPT gloves come off, that is for sure. 

treemagnet's picture

Unicorns can't shit skittles everyday much less on command.  Tomorrow's still coming.

Theta_Burn's picture

What just happened to all the major currencies?

max2205's picture

Finviz burbs this time of day

Hephasteus's picture

Gold is higher than platinum. That is crazy.

Chaffinch's picture

Gold has been higher than platinum before; trouble is, the price of Gold has been held down for a very long time. Gold is starting to come up towards it's real value. Platinum is very useful stuff, no doubt about it, but it can't compete with Gold's function as a currency - and the world needs a currency it can rely on like never before in history.

Flakmeister's picture

Todays action might have the been worst of the past 6 months....

dasein211's picture

Like i said earlier today. Too scared to challenge the QE train/ cb intervention and too scared to go all in becase of debt/defaults. DEER. IN. THE. HEADLIGHTS.

LookingWithAmazement's picture

Bye bye eurocrisis. Even Germany and France can easily bailout their banks. All the doomers can go asleep again, after selling their gold and silver, which are now plunging. Ok, let the next boom(-bust) cycle begin. War is over, merry Christmas everyone.

TruthInSunshine's picture

The mere fact, alone, that you put Germany & France in the same category regarding the ability to "bail out their banks" is prima facie evidence of your idiocy.

LookingWithAmazement's picture

France has 14 billion to pay when its banks write off Greece bonds. That's all. Sleep well.

BetTheHouse's picture

Well. I would, but your sister ... Jesus!  She won't leave me alone!  Now .. what were saying about the banks?

Snidley Whipsnae's picture

"France has 14 billion to pay when its banks write off Greece bonds."

Don't make me laugh... For $14Billion Germany and now England would not be attempting to ring fence their banking sectors.

TwelfthVulture's picture

Dude, you forget to mention all the counterparty CDS's that French banks have against Greek banks who will be subsequently wiped out by a Greek default?  What about all the GREEK bonds held by French banks that will be wiped out by a subsequent Greek default?  What about all the Greek MORTGAGES held by French banks that will be wiped out by a subsequent Greek default?  What about all the counterparty CDS's that French banks have against GERMAN banks who have counterparty CDS's against Greek banks who will be wiped out by a subsequent Greek default?  What about all the counterparty CDS's that French banks have against Italian banks that will be wiped out by a Greek default which will itself neccesitate an ITALIAN default?  Do you see where this is going?


Threeggg's picture

He doesn't count this "stuff"

Ignorance is Bliss you know !

Smiddywesson's picture

Oh, I wouldn't be so hasty to denounce someone for idiocy when idiocy rules the day.  

I don't usually post my trades, but I posted that I was going to cash on Friday because TPTB are cornered, and being the vicious little vermin that they are, they are going to use every dirty trick in their posession to keep gold below $2000.  That trade worked out, because gold had every reason to rise, and yet I went to cash just before it dropped.  Probably a coincidence (wink).  

I have a lot of money in an IRA, and a lot in physical, but I have done a lot of soul searching and believe that FOFOA is right, the decoupling of paper gold and physical gold will necessitate a drop in paper gold prices prior to a real valuation of gold.  This is a watershed event for me, because I always thought gold would rise based on the fundamentals  (despite overpowering manipulation)  but gold prices are not related to fundamentals, gold prices are PAPER prices, minus minus manipulation, and then they are affected by the fundamentals.  What I missed in my analysis is that there is a price to pay for all of this manipulation, and even though Eric Sprott and others with physical funds emphasize the physical backing of the funds, when the cascading collapse of the decoupling occurs, will these funds stop trading or follow the paper price down?  ZH readers, help me here, do any of these funds have a decoupling provision??????????????????  

The only safety is physical.  I am withdrawing all my 401K funds and buying physical.  In this market, even if you are right, you will still be wrong if you don't hold physical.  Appologies to Eric Sprott if anybody thinks that is a criticism of him, it's not, he's the real deal. 

Chaffinch's picture

I have read some of Another's thoughts, and some of what FOFOA says about Freegold / price decoupling and I am trying to understand how it will happen. The only historical example I know of is when the US Govt revalued (physical) gold overnight from 20.67 (those were the days huh?) to 35.00. A 70% hike. But FOFOA is talking about as much as a 100 fold increase. If the principal of an overnight revaluation works then I guess the level of increase could be anything appropriate. So I guess paper gold in this example would have been left at 20.67, for the purposes of working out who owes who how much (in fiat currency). But these days I imagine the de-coupling would work differently, and lawyers would be heavily involved. TPTB could close all the paper and physical markets for as long as it takes to sort out the huge mess. All the holders of paper gold would have counter parties (and some would have long chains of inter-linked counter-parties) and GLD holders would probably sue via a class action. I am guessing a senior judge somewhere would set a value of $x for the value of paper gold at the point where the markets closed. I reckon (a) by the time he makes his decision the value of physical could have risen a whole lot more (and/or the value of the fiat dollar would have become worth even less) and (b) he will discount the value of paper gold versus physical because it will have been demonstrated to him by lawyers acting for the counter-parties that the investors who bought paper gold had the option of investing in physical but chose paper because they wanted leverage, or to avoid storage fees etc, so only right that they should be worse off than holders of physical. But I don't think he could discount hugely - maybe if physical had shot to 10k then he could value paper gold at 8k - but these are wild guesses. However we don't know who the counter-parties might be (especially where there is a long chain of counterparties) and some of them might be unable to pay in which case there would be defaults, possibly without any viable legal remedy, and even if there was a legal remedy it could take years to get it sorted out. The lawyers would make a fortune, so would all the 'expert witnesses' from the LBMA, Comex etc. And if what we read is correct, there might be 100 people with competing claims over the same physical, in which case what is a judge to do, except listen to all of the claimants and then either choose the one in a hundred with the best claim (the one who has the oldest claim on it perhaps?), or split the physical into 100 portions and divvy it out.

Ned Zeppelin's picture

I think in the US it is OK to be in cash (for now - BTFD in PMs) and gold. the rest is nonsense.